American producer prices rise in Jan, industrial output falls

FE Team | Published: February 16, 2018 21:11:21

WASHINGTON, Feb 16 (Reuters): US producer prices accelerated in January, boosted by strong gains in the cost of gasoline and healthcare, offering more evidence that inflation pressures were building up.
While other data on Thursday showed an increase in the number of Americans filing for unemployment benefits, claims continued to point to a tightening labor market. Economists were also unfazed by an unexpected dip in industrial production last month, citing strong business sentiment surveys.
The relatively strong producer inflation report came on the heels of data on Wednesday showing a broad increase in consumer prices in January. Rising inflation was also corroborated by two regional manufacturing surveys on Thursday, which showed sharp increases in prices paid by factories for inputs.
"The drumbeat of higher inflation is getting louder," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "It does appear as if higher inflation is here to stay."
Firming inflation could force the Federal Reserve to raise interest rate a bit more aggressively than is currently anticipated. The US central bank has forecast three rate increases this year, with the first hike expected in March.
The Labor Department said its producer price index for final demand rose 0.4 per cent last month after being unchanged in December. That lifted the year-on-year increase in the PPI to 2.7 per cent from 2.6 per cent in December.
A key gauge of underlying producer price pressures that excludes food, energy and trade services jumped 0.4 per cent last month. The so-called core PPI edged up 0.1 per cent in December.
Core PPI rose 2.5 per cent in the 12 months through January, the largest increase since August 2014. That followed a 2.3 per cent gain in December.
The cost of hospital outpatient care surged 1.0 per cent in January, the largest increase since August 2014, after gaining 0.1 per cent in December. There was also an increase in the price of hospital inpatient care.
Overall, the cost of healthcare services shot up 0.7 per cent in January. These costs feed into the Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy.
The Fed has a 2 per cent inflation target. Following the CPI and PPI reports, Morgan Stanley is forecasting the core PCE price index rising 0.31 per cent in January after increasing 0.2 per cent in December.
That would raise the year-on-year increase in the core PCE price index to 1.6 per cent from 1.5 per cent in December. The data is scheduled for release on March 1.